2005 Annual Report Consists 5 Report to Shareholders of This 2005 Annual Summary 7 Operational Directory and the 2005 Financial Report

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2005 Annual Report Consists 5 Report to Shareholders of This 2005 Annual Summary 7 Operational Directory and the 2005 Financial Report We are... Loblaw Companies Limited 2005 Annual Summary Store Formats Loblaw Companies Limited (“Loblaw” or the “Company”) is Canada’s largest food distributor and a leading provider of general merchandise products, drugstore and financial products and services. Through its various operating banners, Loblaw is committed to providing Canadians with a one-stop destination in meeting their food and everyday household needs. This goal is pursued through a portfolio of store formats across the country. Loblaw is known for the quality, innovation and value of its food offering. It also offers Canada’s strongest control label program, including the unique President’s Choice and no name brands. While food remains at the heart of its offering, Loblaw seeks to change Canadians’ perceptions of what a supermarket can be. Loblaw stores provide a wide, growing and successful range of products and services to meet the everyday household needs of Canadian consumers. In addition, President’s Choice Financial services offer core banking, a popular MasterCard®, PC Financial auto, home, travel and pet insurance as well as the PC points loyalty program. Loblaw seeks to achieve its business objectives through stable, sustainable and long term growth. Its willingness to assume prudent operating risks is equaled by its commitment to the maintenance of a strong balance sheet position. In executing its strategies, Loblaw allocates the resources needed to invest in and expand its existing markets. It also maintains an active product development program. Loblaw is highly selective in its consideration of acquisitions and other business opportunities. Given the competitive nature of its industry, Loblaw also strives to make its operating environment as stable and as cost effective as possible. It works to ensure that its technology systems and logistics enhance the efficiency of its operations. Over 134,000 full-time and part-time employees execute its business strategy in more than 1,000 corporate and franchised stores from coast to coast. This makes Loblaw one of Canada’s largest private sector employers. It strives to contribute to the communities it serves and to exercise responsible corporate citizenship. Many Strengths, One Vision Contents 2005 Annual Summary 2 Financial Highlights The 2005 Annual Report consists 5 Report to Shareholders of this 2005 Annual Summary 7 Operational Directory and the 2005 Financial Report. 9 Operational Review 16 Community Support 17 Corporate Social Responsibility 18 Summary of Corporate Governance Practices 20 Board of Directors and Corporate Officers Customer Focus Strategic Business Initiatives ...aligning for success. Product Innovation National Systems and Supply Chain 2005 Annual Summary Loblaw Companies Limited 1 Financial Highlights(1) For the years ended December 31, 2005 and January 1, 2005 2005 2004 ($ millions except where otherwise indicated) (52 weeks) (52 weeks) Operating Results Sales $ 27,801 $ 26,209 Sales excluding impact of variable interest entities(2) 27,423 26,209 Adjusted EBITDA(2) 2,132 2,125 Operating income 1,401 1,652 Adjusted operating income(2) 1,600 1,652 Interest expense 252 239 Net earnings 746 968 Cash Flow Cash flows from operating activities 1,489 1,443 Capital investment 1,156 1,258 Per Common Share ($) Basic net earnings 2.72 3.53 Adjusted basic net earnings(2) 3.35 3.48 Dividend rate at year end .84 .76 Cash flows from operating activities 5.43 5.26 Book value 21.48 19.74 Market price at year end 56.37 72.02 Financial Ratios Adjusted EBITDA margin(2) 7.8% 8.1% Operating margin 5.0% 6.3% Adjusted operating margin(2) 5.8% 6.3% Return on average total assets(2) 11.2% 14.2% Return on average shareholders’ equity 13.2% 19.2% Interest coverage 5.6:1 6.9:1 Net debt(2) to equity .66:1 .71:1 Operating Statistics Retail square footage (in millions) 48.5 45.7 Average corporate store size (square feet) 56,100 53,600 Corporate stores sales per average square foot ($) 579 592 Same-store sales growth 0.2% 1.5% Number of corporate stores 670 658 Number of franchised stores 402 400 (1) For financial definitions and ratios refer to the Glossary of Terms on page 68 of the 2005 Financial Report. (2) See Non-GAAP Financial Measures on page 33 of the 2005 Financial Report. Forward-Looking Statements This Annual Report, which consists of the Annual Summary and the Financial Report, contains forward-looking statements which reflect management’s expectations regarding the Company’s objectives, plans, goals, strategies, future growth, results of operations, performance and business prospects and opportunities. These forward-looking statements include expected sales and earnings prospects for 2006. Forward-looking statements are typically identified by words or phrases such as “anticipates”, “expects”, “believes”, “estimates”, “intends” and other similar expressions. These forward-looking statements are not guarantees, but only predictions. Although the Company believes that these statements are based on information and assumptions which are current, reasonable and complete, these statements are necessarily subject to a number of factors that could cause actual results to vary significantly from the estimates, projections and intentions. Such differences may be caused by factors which include, but are not limited to, changes in consumer spending and preferences, heightened competition including new competitors and expansion of current competitors, the ability to realize anticipated cost savings, including those resulting from restructuring and other cost reduction initiatives, the ability to execute restructuring plans effectively, the Company’s relationship with its employees, results of labour negotiations including the terms of future collective bargaining agreements, changes to the regulatory environment in which the Company operates now or in the future, changes in the Company’s tax liabilities, either through changes in tax laws or future assessments, performance of third-party service providers, public health events, the ability of the Company to attract and retain key executives, and supply and quality control issues with vendors. The Company cautions that this list of factors is not exhaustive. These factors and other risks and uncertainties are discussed in the Company’s materials filed with the Canadian securities regulatory authorities from time to time, including the Risks and Risk Management section of the Company’s Management’s Discussion and Analysis in its Financial Report. The assumptions applied in making the forward-looking statements contained in this Annual Report include the following: economic conditions in 2006 do not materially change from those expected, patterns of consumer spending are reasonably consistent with historical trends, no new significant competitors enter our markets nor does any existing competitor significantly increase its presence, anticipated cost savings from restructuring activities are realized as planned, continuing future restructuring activities are effectively executed, there are no material work stoppages in 2006 and the performance of third-party service providers is in accordance with expectations in the upcoming year. Potential investors and other readers are urged to consider these factors carefully in evaluating these forward-looking statements and are cautioned not to place undue reliance on them. The forward-looking statements included in this Annual Report are made only as of the filing date of this Annual Report and the Company does not undertake to publicly update these forward-looking statements to reflect new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events contained in these forward-looking statements may or may not occur. The Company cannot assure that projected results or events will be achieved. 2 2005 Annual Summary Loblaw Companies Limited Aligning for success involves... • offering four distinct store formats while continuing to operate under a multi-banner approach; • relocating 132 employees and their families from Calgary to Toronto, and from Vancouver to Calgary in order to focus operational efforts towards maximizing opportunities; • a multi-year restructuring of the Company’s supply chain to a more efficient network of fewer, yet larger facilities; • consolidating seven administrative offices from across southern Ontario into one national head office and Store Support Centre; and • investing resources in repositioning the Company for the longer term in response to today’s changing competitive landscape, and absorbing the short term costs associated with that investment. Return on Average Basic Net Earnings, Adjusted Basic Total Return on $100 Investment Shareholders’ Equity Net Earnings(1) and Dividend Rate (includes dividend reinvestment) per Common Share ($) ($) 20% $3.60 $200 15 2.70 150 10 1.80 100 5 .90 50 0 .00 0 2001 2002 2003 2004 2005 2001(2)2002 2003 (3) 2004 2005 2000 2001 2002 2003 2004 2005 Return on Average Dividend Rate per Common Share at Year End Loblaw Companies Limited Shareholders’ Equity Basic Net Earnings per Common Share TSX Food and Staples Retailing Sub Index FivcFive Year Average Return Adjusted Basic Net Earnings per Common Share (1) S&P/TSX Composite Index (1) See Non-GAAP Financial Measures on page 33 of the 2005 Financial Report. (2) Basic Earnings per Common Share before Goodwill Charges. (3) 2003 was a 53 week year. 2005 Annual Summary Loblaw Companies Limited 3 W. Galen Weston, Chairman and John A. Lederer, President 4 2005 Annual Summary Loblaw Companies Limited Report to Shareholders In 2005, Loblaw Companies Limited moved closer to completing one of the largest transformations in its history. We were challenged by the size and impact of the short term costs associated with executing certain elements of the transformation. At the same time, we were confident that this initiative was These execution-centred challenges are being addressed and absolutely necessary to ensure that Loblaw can continue to resolved. We expect that the negative impact of these changes compete successfully, to grow and to generate meaningful value will be absorbed by the end of the second quarter of 2006.
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